Ford Cedes Control in India After Struggling to Make Inroads
(Bloomberg) -- Ford Motor Co. agreed to move most of its assets in India into a joint venture with a local partner after struggling for more than two decades to win over buyers in the world’s fourth-largest auto market.
The deal effectively ends Ford’s independent operations in a country it wanted to become one of its top three markets by 2020. The U.S. carmaker will take an $800 million to $900 million impairment charge related to the value of its India assets in the third quarter, it said Tuesday, after struggling to compete with cheap, fuel-efficient vehicles built by the local units of Suzuki Motor Corp. and Hyundai Motor Co.
Mahindra & Mahindra Ltd., a leading Indian maker of sport utility vehicles, will own 51% of the joint venture and Ford the rest, the two companies said. The JV, which includes Ford’s two car factories in India, will be operationally managed by Mahindra. Governance of the venture is valued at 19.25 billion rupees ($275 million) and will be equally shared.
Ford has been “struggling for a long while,” and Mahindra’s products as well as its sourcing and distribution network will support the American company, said Priya Ranjan, an analyst at Antique Stock Broking in Mumbai. “It is not about giving up on India, it’s about doing better in India.”
Ford sees an opportunity to double revenue in India by jointly developing new SUVs with Mahindra and cutting “backend” costs in manufacturing and parts purchasing, according to Jim Farley, the automaker’s president of new business, technology and strategy.
“We can cut the investment in new products by 30% to 40% because we’re using a common platform,” Farley said in an interview. “What Mahindra has is some great low-cost platforms, low-cost manufacturing and, frankly, operating strengths including logistics, but they don’t have an overseas dealer network and that’s exactly what Ford has.”
The agreement, which includes cooperating on electric cars for emerging markets, comes at a time when sales of cars and SUVs in India are going through the worst-ever slump. A slowing economy, dwindling rural income, and rising popularity of ride-hailing and car-sharing services are weighing on vehicle demand.
Ford and Mahindra plan to introduce three new vehicles under the Ford brand, beginning with a midsize SUV that will share underpinnings with the Indian partner.
The deal keeps Ford in the country of 1.3 billion people while letting it share the financial burden with Mahindra, as Chief Executive Officer Jim Hackett leads an $11 billion restructuring effort and pares money-losing overseas operations. U.S. rival General Motors Co. pulled out of India two years ago, scrapping a $1 billion investment and stopping sales of Chevrolet models.
Last year, Ford posted a $82 million profit after tax, Farley said. “We’re not in a losing situation in India, though the market has been very difficult this year,” the Ford executive said.
Ford, which says it is the top exporter of cars from India, will continue to ship SUVs to emerging markets from the factories it will now operate jointly with Mahindra, Farley said.
“The revenue doubling is not just an India story,” Farley said. “Actually the real interesting piece is going to be the export capability.”
Ford was one of the first global car companies to enter India when the economy opened up in the early 1990s. The company first set up shop in India in 1926 but shut down that operation in the 1950s.
India’s car sales contracted 41% in August, the 10th straight monthly decline. Job losses in the industry, which employs more than 32 million people directly and indirectly, have climbed to more than 580,000 in the past 18 months, according to estimates from labor unions and auto dealers.
©2019 Bloomberg L.P.